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NH biofuel firm is latest to fall short on IPO

By DAVE SOLOMONNew Hampshire Union Leader

LEBANON - Mascoma Corp., a Lebanon-based company that specializes in renewable fuels, has withdrawn plans for an initial public offering that it had hoped would raise as much as $100 million to finance its core business of producing the gasoline additive ethanol from corn or pulpwood.

The stock market is not hot on biofuels these days. Several companies like Mascoma considered going public in the past year, only to withdraw when they saw the numbers.

Mascoma executives declined to be interviewed, but Bill Brady, president and CEO, wrote in an email, "The terms provided by the IPO market at this time were not attractive to the company."

He said Mascoma will continue to fund its operations with money from private investors and by increasing revenues from its grain technology business.

Mascoma is trying to secure additional financing to construct two ethanol plants, one in Kinross, Mich., and the other in Alberta, Canada, to convert wood into ethanol using its proprietary processes.

The timing of the IPO to finance the moves did not work in the company's favor.

The company has been successful over the years in attracting private investment, including millions from high-profile investor Vinod Khosla, an Indian-born American businessman and venture capitalist, as well as Valero Energy and Marathon Oil.

Last year the company signed an agreement with the U.S. Department of Energy for $80 million in funding for the Michigan plant, in addition to $20 million previously awarded by the DOE for research and development.

Other cancellations

Mascoma, which employs about 50 people at its Lebanon headquarters, is the fourth biofuels company to cancel or delay indefinitely an initial share sale since last year, according to Bloomberg.

Municipal waste-to-ethanol company Enerkem canceled its IPO in April. Fulcrum BioEnergy withdrew its IPO plans in November, and Coskata, which produces ethanol from woodchips, made a similar move in July. Some biofuel companies have managed to go through the IPO process, but are trading far below their initial public offering price.

Bloomberg reported on Tuesday that market pricing suggests ethanol production has balanced supply with demand for the biofuel, as gasoline consumption has declined. Beyond supply and demand is a larger concern about the long-term prospects for biofuels, amid debate among scientists and policymakers as to the efficiency of growing corn or harvesting lumber to create fuel.

"While Mascoma's technology is compelling, it has floundered in spite of a federal mandate, government subsidies and backing from major companies and Silicon Valley venture firms," according to Kirsten Korosec, contributing editor at smartplanet.com. "The advanced biofuels industry has struggled to scale up commercially, and dozens of companies have folded in the process."

Snake oil?

The industry relies heavily on government targets for ethanol content in gasoline, and the European Union is considering a proposal to freeze crop-based biofuel consumption at current levels. In the U.S., the Energy Information Administration reports that production through the end of 2012 fell compared with the same period the previous year, putting the industry on track for the first annual drop since 1996, according to Reuters.

"The European Commission has proposed effectively to halt industry growth pending a better understanding of its wider impacts," Reuters reported.

One issue is the net energy effect, when the fuel and fertilizer needed to grow and harvest the raw materials of ethanol are taken into account. An extensive study by the University of Waterloo in Ontario, Canada, titled "21st Century Snake Oil," is being widely debated in the energy industry.

"When the energy content of the final product, biofuel, is compared to all the energy that was required to make it, the trade proves to be a very poor investment, especially considering the alternatives," according to the study's authors. "In many cases, there is a net loss of energy."